October 26, 2011

Host: Ted Simons

Saving for College

Dr. April Osborn, Executive Director of the Arizona Commission for Postsecondary Education, talks about the value and affordability of a college education and programs that help families pay for college.

Guests:

Dr. April Osborn - Executive Director of the Arizona Commission for Postsecondary Education

Ted Simons: The cost of higher education is on the rise. So is the amount of debt students are piling up due to college loans. According to a new report from the College Board, tuition and fees at public universities increased 8.3% this year, that's twice the rate of inflation. And students are now leaving college with an average of $22,000 in debt. Here to talk about the cost of a college education and how to pay for it is Dr. April Osborn, Executive Cirector of the Arizona Commission for Post Secondary Education. Good to have you here. Thanks for joining us.

Dr. April Osborn: I am. Um, in 1998, the federal government recognized that education costs were escalating. And they needed a way for moderate income families to prepare for these expenses. 80% of all financial aid comes from the federal government, but it goes to low-income families. So they set up a tax advantaged way for people to put money aside over time and prepare for those expenses.

Ted Simons: Now, you put the money aside, and you can go to any college of your choice?

Dr. April Osborn: Yes.

Ted Simons: And --

Dr. April Osborn: Any accredited college.

Ted Simons: Okay. And as far as Arizona's 529 plan, there are other states with their own 529 plans as well?

Dr. April Osborn: There are 49 529 plans.

Ted Simons: Almost everyone's got one.

Dr. April Osborn: Two of them consolidated.

Ted Simons: What differentiates Arizona's plan?

Dr. April Osborn: Well, our plan has one of the largest breadths of choices. We have three different program providers, these are financial institutions that manage the assets we have. We have also $623 million in assets representing about 66,000 students' accounts. That plan, because we have so many choices, allows a family to determine what risk level they want, and what kind of investments they're comfortable with. And we have two C.D.s, we were talking earlier about safety, we have C.D.s offered through the 529 plan that are FDiC ensured. And that's on a lot of people's minds right now. The principle is insured, the interest is not.

Ted Simons: And not all of the 529 plan there are other aspects in the plan that aren't insured as well. The C.D.s are.

Dr. April Osborn: Yes. We have mutual funds in a variety of choices as well.

Ted Simons: Is there a minimum investment required?

Dr. April Osborn: There is, but you can open an account for as little as $15 a month.

Ted Simons: $15 a month? That's a minimum investment?

Dr. April Osborn: Uh-huh.

Ted Simons: And are there income restrictions?

No. There are not income restrictions. So anybody that wants to put money away is allowed to put money away.

Ted Simons: The commission's role in this and in helping families pay for college, talk to us about that.

Dr. April Osborn: Well, the Arizona Commission for Post Secondary Education is the identified agency in the state to deliver student financial assistance. And that includes grants, forgivable loans, and the 529 plan. So that's the core responsibilities of our organization. And we're invested in college access

Ted Simons: Has that work changed here over the past few years?

Dr. April Osborn: Oh my goodness. Yes. Our grants are down 78%, which gives us even more pause to think about the 529 plan. And we're grateful that we have a chance to talk to people about it, because the costs are going up even higher in Arizona than the numbers that you said, because we had such low cost private institutions. They're no longer low cost, they're slightly above average. And our parents are not necessarily informed until maybe the year before college, and they have some challenges.

Ted Simons: More information on these 529 plans, where can people go?

Dr. April Osborn: Go to www.az529.gov

Ted Simons: While we got you here, the president today I believe talked about speeding up a loan repayment program, the payment program based on income. Basically speeding up the process.

Dr. April Osborn: Yes. We were celebrating in my office earlier, this is great news that actually came out yesterday. Several things, first, those that have loans that are nonconsolidated, they're allowing loans that were given by banks, we've just changed from independent loans and federal loans to all loans coming through the federal government, and they're encouraging consolidation, and when students consolidate, they may get as much as a half percentage interest rate reduction.

Dr. April Osborn: Yeah. That's the income-based repayment program. And that was instituted like a year ago, and now he's going back and moving the time line up so it goes to 2012. And changing the terms to benefit students. And the way they're being changed is they -- what happens is your discretionary income is figured and then you are expected to pay at least 15% of that discretionary income for 25 years in the original program. And then yesterday he announced it would be 20 years and only 10%. So that allows to you pay a lower amount per month and at the end of 20 years, it's forgiven whatever remains.

Ted Simons: You said in your office there was a big cheer when this was announced.

Dr. April Osborn: It was.

Ted Simons: Why was that?

Dr. April Osborn: Well, we talk to students and we talk to families all the time, and our student loan debt is higher than the national average. We're sitting at about 27,000 per student. $27,000 per student. So we have lots of conversations about loans, and also the consolidation is a great thing, because it's very confusing to students to have three different payees, and often they then end up defaulting or missing a payment, and it costs them more.

Ted Simons: Okay. Once again, that website for the 529 plan --

Dr. April Osborn: www.az529.gov

Ted Simons: Very good. Good to have you on the show. Thanks for joining us.